The cryptocurrency market’s response to any news concerning the possibility of a Bitcoin ETF has always been positive, typically triggering a rally. But then markets turn south every time the prospect gets shot down post regulatory scrutiny. The narrative is becoming predictable, and US investors are wondering if such a product will ever see the light of day.
Why So Much Demand in the US for a Bitcoin ETF?
Cryptocurrencies have carved out new territory in the financial landscape. Not unlike the US narrative of the “Wild West,” the new opportunities presented comes not only with risks, but with risks that are generally unknown, many lurking from the cyber-netherworlds of hackerdom.
So when an institution offers a regulated product such as an exchange-traded fund (ETF), investors are given some relief that perhaps the security and storage of underlying assets, in this case Bitcoin, will be managed under the professional oversight of a regulated financial firm.
For many US investors who are not so crypto-savvy but nevertheless want exposure to these emerging assets, the “DIY” (Do It Yourself) model may be a bit too risky or may entail more responsibilities than an investor is willing to take on. But perhaps financial regulators feel the same way with regard to their end of the bargain; hence, no ETF concept has ever passed scrutiny.
Sweden’s XBT Provider Has Found a Workable Solution for US Investors
Last week, XBT Provider, a Swedish company and subsidiary of UK-based GLobal Advisors (Holdings ) Limited, release an exchange-traded note–more popularly known as an “ETN”–that tracks Bitcoin priced in US dollars. Th ETN is called “Bitcoin Tracker One,” (its ticker is CXBTF) and it trades on Nasdaq Stockholm (via Stockholm Stock Exchange). US investors can access this instrument through a limited number of stock brokerages and retirement accounts.
And although this development may be deemed a significant one for investors who have been waiting for an instrument that can track BTC/USD through the intermediary of a regulated financial institution, its important to note that ETNs offer similar performance to ETFs, but with critical differences.
What is an ETN vs an ETF?
Like ETFs, ETNs also track an underlying asset or index. And to put it quite abruptly, the similarities end there.
When you buy shares of an ETF, your investing in a pooled fund that has a percentage of ownership in the underlying asset.
When you invest in an ETN, you are virtually buying the issuer’s bond. But instead of paying back the principal along with making regular interest payments, upon maturity, the bond (ETN) issuer will pay you according to the value of the tracked asset, plus or minus your initial investment (depending on whether the underlying had appreciated or depreciated).
So the main risk of investing in an ETN is the creditworthiness of the bond issuer; and note that a downgrade of the issuer’s credit rating can result in a drop of the ETN price even if the underlying asset price remains stable or appreciates.
Bitcoin Tracker One ETN, a Worthy Investment?
So why might investors want to invest in CXBTF? Well, currently investors have only three choices:
- Wait for an ETF to be approved (a prospect that doesn’t look likely in the immediate future);
- Buy cryptocurrencies directly (which can be too risky or onerous for many investors); and
- Invest in a fund like Grayscale Bitcoin Investment Trust (ticker: BGTC).
The issue with the latter which may be a turn-off for many investors is that a single share costs over 50% of the price of the underlying asset. Plus, it has much lower liquidity than the CXBTF.
So, is Bitcoin Tracker One ETN worthy investment? You’ll have to read the prospectus and decide on your own. The most we can say is that it is an option for US investors to gain exposure to this market.
Before you invest, be sure to consult a financial professional to determine the risks and whether such an investment may be suitable (or not) with your financial goals and risk tolerance.
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